You may not have immediate access to cash but tapping into your IRA, or your insurance plan might help. Inheriting a large sum of money allows you to pay for your new house. Sometimes, you are just better than others at saving money, and within a few years, you find that you can pay cash for your new house.
The argument: Is It a Good Idea to Pay Cash for a New Property? If you can afford to pay for the house, does that mean, you should go without a mortgage?
The answer is both ‘Yes & No.’ It depends on individual circumstances. We are making a comparison to help you make a decision.
Loss of Liquidity
It is good news that you have saved up enough to finance your new home. While buying the house, make sure that you set aside an emergency fund worth a few thousand. Your emergency fund should support you for 3-6 months in case of a financial problem. You can always tap into your savings amount, but it is not easy to get needed cash when you have spent it on the house. When considering the price of the new home, you should also calculate regular maintenance expenses, HOA fees, and property taxes. Make sure that you have enough funds to cover those expenses in the first year of homeownership.
No Tax break
Homeowners receive tax breaks only if they are paying a mortgage loan. The tax deductions are applicable on the mortgage interest rate. It is great that you do not have to pay the monthly installments, but you are also not eligible for tax benefits.
You Still Pay Closing Costs
It is not a disadvantage, but many of us do not know this. Since you are paying cash, you do not pay loan-related costs. However, you are still responsible for the transfer fee, title insurance, home insurance, homeowner’s insurance, inspection, and appraisal charges. Together, these charges might add up to 1%-2% of the house price.
Get Rid of Outstanding Mortgage Payments
Peace of mind is probably the best benefit of owning your house without a mortgage. No need to worry about late payments, foreclosure or even the changing interest rates. You are free to do whatever you want to do with your house.
Buy Your House at a Discount
The net cost will be less if you pay cash versus if you are taking a mortgage. You often have to pay the double price because of loan origination fees, processing charges, and interest rate.
|Value of House: $246,000||Cash Deals||Mortgage Deals|
|Down Payment: $49,000||$0 Interest||$159,360 Interest|
|Loan Duration: 30 Years|
|Interest Rate: 4.43%|
That means, over the next 30 years, you will pay $160k in the interest rate for a loan of $197k. In other words, if you pay cash, you can save up to $160k.
Market Fluctuations Do Not Matter
Your house can go upside down tomorrow, and you do not have to worry about pending mortgage payments. Home values go up and down. While a declining market does not favor anyone, it creates difficulties for those who are committed to a long-term mortgage plan. Paying cash frees you from this commitment.
Once you make the payment, instant equity becomes available to you. You can take a Home Equity Line of Credit to pay for other big-ticket items.
In case of emergency, you can also refinance the house and take out the needed money.
Buying or selling a house for a cash price has its advantages. If you can comfortably afford to pay for this item, you should go for it. Property sellers favor cash offers as there are fewer hurdles involved in the process. That is why CT House Buy LLC always purchases homes for a cash price.